A proposal to allow the state’s largest subprime lender to improve its bottom line on loans was killed Wednesday by Colorado’s House State, Veterans, and Military Affairs Committee, despite efforts by the bill’s sponsor to water it down just to keep it alive.
But even if the measure had passed the House committee, Senate Bill 16-185 would have almost certainly been shot down by Gov. John Hickenlooper, who vetoed a similar effort last year.
Subprime loans allow people with poor to fair credit ratings to obtain loans between $1,000 and $25,000, with finance charges varying from 15 percent to 36 percent, depending on the amount borrowed. Loans are to be repaid within five years.
The bill would help the state’s largest subprime lender, One Main, which claims it’s not profitable to do business in Colorado.
There are two types of loans marketed to people with lower credit ratings. For those with the poorest credit ratings, or none at all, payday loans of up to $500 are available. They have to be repaid within six months and come with interest rates of 200 percent or more. They’re also marketed as a short-term emergency solution, not for long-term financial decisions.
A subprime loan is available to those with poor to fair credit ratings, for amounts up to $25,000. They carry interest rates between 15 percent and 36 percent. These subprime loans can be used to consolidate debt or to pay for long-term financial needs.
The proposal originally stated the amount financed would be adjusted annually for inflation, with that adjustment taking into account inflation dating back to 2000.
Rich Jones of the left-leaning Bell Policy Center explained how that would work: The finance cost for a $5,000 loan, paid over 36 months, would increase from $2,098 to $2,338, a 26.9 percent hike.
The Bell Policy Center led the opposition in Wednesday’s hearing, pointing out that those with poor or fair credit shouldn’t be hit harder for finance costs.
Bill sponsor Rep. Jovan Melton, a Denver Democrat, said only one subprime lender remained in Colorado, after a series of mergers. That lender, One Main, has closed 24 locations statewide in the last few years, because the company isn’t making money here.
Melton acknowledged critics who point out that One Main is profitable nationally. “That may seem a compelling argument,” Melton said, “but what matters is the local market. If you’re not profitable in a state, you pull out,” and that’s what’s happened here.
Melton said the bill was not an attempt to appease a company that’s threatening to leave the state.
In response, Jones said that if people want the loans, and qualify for them, “they can get them. We haven’t found evidence that credit isn’t available.”
Melton’s district has only one One Main branch in his district but 12 payday lenders.
If that one subprime option shutters its doors, people will turn to payday lenders, Melton said to the committee.
Opponents disagree. They said payday and subprime loans are completely different products, marketed to different consumers.
Increasing the finance costs on subprime loans would hurt both older Coloradans and small businesses, said witnesses.
Tim Gaudette of the Small Business Majority said small business owners often turn to these types of loans to finance their companies.
A poll released this week by the Small Business Majority shows that 90 percent of Colorado’s small business owners would oppose similar legislation, he said. Most who responded would be likely customers of such loans.
The bill is bad for Colorado’s economy, Gaudette told the State Affairs committee.
Bill Hitz, an employee of One Main, said the market has seen a 74 percent decrease in lending in Colorado during the past few years, despite the state’s growing population.
The need for credit hasn’t gone away, Hitz said. Instead people are turning to online subprime lenders for loans, which undercuts job growth. One Main brings jobs to Colorado, with employees in branches around the state.
Julie Anne Meade, the Administrator of the Uniform Consumer Credit Code, a deputy attorney general, said the bill would increase finance costs for anyone who buys merchandise on credit from a retailer.
Meade also said that while One Main is certainly the largest subprime lender in Colorado, it is not the only one. There are more than 500 such lenders in the state, she said.
Melton offered to turn his proposal into a study, to bring together stakeholders to determine whether people struggle to take out these types of loans. The committee voted his amendment down.
Melton said he tried to work with the bill’s opponents and come up with options, “but they were unwilling to compromise,” he said.
The measure died on a party-line vote, with the committee’s majority Democrats voting against and Republicans in favor.
Hickenlooper told reporters his opposition to the bill was clear, and that this year’s bill would have to be very different to avoid a veto again.
In his veto letter to lawmakers in 2015, Hickenlooper cited testimony from the Attorney General’s office, which said that nothing in their analysis indicated “this type of consumer credit is not available or that changing the rates would make it more available.”
When informed last month that the measure could impact anyone with a retail credit card, Hickenlooper said the bill might have “a steep hill to climb” to pass through the legislature.
Photo credit: Pictures of Money, Creative Commons, Flickr.
